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Enstar nears deal on natural gas storage

Enstar Natural Gas Co. is in the final stages of negotiations with a TransCanada Corp. subsidiary on an agreement to build a gas storage facility on the Kenai Peninsula.

Cook Inlet Natural Gas Storage LLC, a recently formed subsidiary of TransCanada, would develop and operate the facility, which would be located in a mostly depleted gas field.

Several gas reservoirs are being considered, but the Cannery Loop field near Kenai is the leading candidate, said TransCanada spokesman Michael Barnes. Cannery Loop is owned and operated by Marathon Oil Co.

Barnes said TransCanada has signed a memorandum of understanding with Enstar as a framework for negotiations, and that other customers are being solicited. Because agreements are not yet signed, it is premature to disclose the volumes of gas that would be stored, Barnes said.

Enstar Vice President Colleen Starring said her company would be an anchor customer for the project. Two regional electric utilities, Chugach Electric Association and Anchorage's city-owned Municipal Light and Power, are also considering the plan, and the project is designed to be expanded to include more customers, Starring said.

The project would inject gas into the reservoir for storage during the summer months and withdraw it during the winter, when regional utilities experience peak demands.

Until recently there has not been a need for gas storage because gas fields in Southcentral Alaska had enough pressure and capacity to meet winter increases in demand. But the gas fields are now depleted and can no longer meet demand during very cold weather.

During cold weather, Enstar and the electric utilities have been able to draw on gas diverted from a liquefied natural gas plant in Kenai owned by ConocoPhillips and Marathon, but the future of the LNG plant is uncertain because its federal LNG export permit expires in March 2011.

Marathon and Chevron operate gas storage for their own customers, which include Enstar, but do not have enough capacity to meet all of the regional utilities' needs.

"This is important because it would help us meet our deliverability requirements," Starring said. "It would also help stimulate more exploration and development of long-term supply because producers would have a place to store their gas and could operate their wells at steady, year-round rates and without these tremendous seasonal swings in demand from the utilities. It would make us a more attractive customer for the producers."

TransCanada has a long history in developing and operating gas storage through ANR Storage Co., another subsidiary that works in Michigan with Enstar's parent company, Semco Energy. ANR has been operating gas storage in Michigan since 1940.